Wednesday, October 09, 2013

How to fool foreigners?

Our most revered Finance Minister is fond of lecturing us on what needs to be done but never spells out how he is going to do it. " On the government side, sooner ( rather ) than later we will have to address the issue of higher subsidies than budgeted, on both fuel and food," he said, as he jetted off to the US in one of the luxury planes bought with taxpayer money. But how? The Food Security Bill was passed during the monsoon session of parliament and he did nothing, knowing full well that once a subsidy is started it is virtually impossible to stop it. With the population still growing more food, not less, will be required. Since the NREGA handout is linked to inflation, and inflation continues to grow at 10%, budgetary support will only continue to balloon. As for fuel, no one knows the amount of subsidy because the taxes on petroleum products are so varied and confusing that we do not have any idea as to what the right price of sale should be. The price is calculated as 80% Trade Parity Pricing and 20% Export Parity Pricing. Then customs duty, import charges and imaginary costs such as Trade Premium and Ocean Freight Charges are added on. All this is probably done to deceive the people because we cannot understand such gibberish. It is stupid to collect huge taxes up front and then claim that oil companies are losing money and need government support. It would be much better to simplify and reduce taxes on oil and allow a level playing field for private companies which would stop cartelisation by state owned companies and bring down prices through competition, as has happened in telecom. On the one hand, subsidies cause distortion in trade, angering other countries, while on the other, high taxes hinder free trade agreements. Thus, talks with the EU on a FTA are held up because of high taxes on alcoholic drinks and cars while food security subsidies could fall foul of WTO rules. The new Chief of WTO, Roberto Azevedo said," They ( India ) would soon be breaching their, what we call AMS ( Aggregate Measurement of Support ) commitments in the WTO. So, they are asking for some kind of actions in Geneva that could allow those programmes to continue to work." In short," Be prepared for trade sanctions." But before that Treasury Secretary, Jacob Lew lies in wait. And Americans are not known to be diplomatic. You can fool the people but foreigners are tough nuts.

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